As a direct result of the ‘permanent’ lifting of lockdown, more than a third of South African wealth investors will allocate more towards high-risk investments, even if most will allocate more to savings or low-risk investments
Many South African wealth investors are investing in high-risk asset classes that are new to the market, including emergent sectors like electric vehicles, biotech and cryptocurrencies
Some wealth investors are exhibiting extreme investing behaviours
Zero or negative interest rates incentivise risky investing
66% of South African wealth investors claim that the performance of their investments has an impact on their mental health
In March 2020, the longest bull market in history turned bearish, with market sentiment swinging aggressively towards pessimism. While the global stock market recovered quickly, the South African economy found itself in a decided downturn, exacerbated by the imposition of various lockdowns throughout 2020 and 2021. The 2021 Schroders Global Investor Study has found that as a direct result of the lifting of lockdown, and in the face of continued economy uncertainty, more than a third of South African wealth investors are exhibiting riskier investment behaviour.
South Africans take greater risks to compensate for uncertainties
This is the opinion of Kondi Nkosi, Country Head for Schroders in South Africa, who elaborates: “A snapshot of the data from the study reveals that in the wake of the pandemic, South African wealth investors will allocate more of their money towards their savings and low-risk asset classes. However, 39% of respondents claim that high-risk investments make attractive prospects now that ‘permanent’ lockdowns have been lifted. This is particularly true of younger generations.”
These results are demonstrative of the fact that for many investors, the economic instabilities that have come to characterise present-day South Africa are compelling enough to justify taking greater risks – perhaps to compensate for the uncertainty.
Millennials display the biggest appetite for risk – and they’re venturing into new assets and sectors
According to the study, the appetite for high-risk investments is the highest amongst the 18-37 age group, and decreases notably as the age bracket increases. Amongst South African respondents, millennials (22-41 years old) demonstrated the most significant inclination towards risk. Older generations are the most risk averse. Few would have the appetite to stake their retirement savings on high-risk asset classes in times of increased market volatility.
Along with the appetite for higher risk comes a willingness to break into new sectors and assets for the first time. These new markets include electric vehicle-related stocks and funds, biotech, internet and tech-related stocks and cryptocurrencies. In this regard, the South African data mirrored the global outlook.
As Nkosi explained: “Historically, investments into real estate and commodities attracted the most investment but during the final stage of the Study, we saw South African interest in internet and tech company stocks increase to 54%. We also saw 70% of South African respondents investing in cryptocurrencies like Bitcoin, Ethereum and Litecoin. Given the extreme volatility of crypto assets, it’s of no surprise that it’s highly represented.”
Young investors are bullish – even though investment outcomes weigh on their mental wellbeing
Presented with the scenario in which interest rates are at zero or negative, 53% of South African wealth investors aged 18-37 said they would make higher-risk investments in pursuit of returns, while roughly half of that percentage would be more likely to spend and less likely to save. This is despite 71% of this age group stating that the performance of their investments has an impact on their mental health.
“We need to see these findings in the context of record-low interest rates in South Africa and indeed, throughout the rest of the world. Although the lifting of lockdowns has had a definite effect on investors’ appetite for risk, low interest rates have also helped to restart the decade-long bull run that emerged post-financial crisis and contributed to the rise of the risk investor,” Nkosi expanded.
“Investors need to approach risk appropriately and with discernment given the impact that performance has on their mental health”, he said.